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What's New? June 2017 Edition 27 Jun 2017 Judgment in first Future of Financial Advice case 

Australian Securities and Investments Commission v NSG Services Pty Ltd [2017] FCA 345

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In our October 2016 edition of What’s New?, we provided a brief overview of ASIC v NSG Services Pty Ltd, the first case brought by ASIC alleging breaches of the best interests obligations in Division 2 of Part 7.7A of the Corporations Act. On 30 March 2017, the Federal Court delivered its judgment in the case. The court’s judgment includes useful observations about what is required to satisfy the best interests obligations under the Act.

NSG Services Pty Ltd (NSG) holds an Australia Financial Services Licence permitting it to advise retail clients about life insurance and superannuation products through its representatives.

In June 2016, ASIC brought proceedings against NSG alleging that NSG’s representatives had failed to:

  • act in the best interests of their clients pursuant to s 961B (best interests duty); and
  • provide advice appropriate to their clients pursuant to s 961G (appropriate advice duty).

ASIC and NSG agreed that NSG was liable for the alleged breaches, but it remained necessary for the court to be satisfied that a proper basis existed for this agreement.

Moshinsky J considered the legislative provisions and made the following observations:

  • The best interests duty imposed by s 961B(1) will be satisfied if an advisor proves that, in giving financial advice, the advisor took each of seven steps in s 961B(2). Section 961B(2) was therefore a “safe harbour” for persons alleged of breaching s 961B(1). However, it was accepted by both parties including ASIC that a person may be able to satisfy the best interest duty in s 961B(1) even if they did not have the benefit of the “safe harbour” in s 961B(2). ASIC however argued that generally in the real world coming within the safe harbour will at least be the main way of showing the duty was discharged.
  • His Honour noted a possible contrast between the best interests duty under s 961B and the appropriate advice duty under s 961G. He observed that it was common ground that “while s 961B is concerned with the process or procedure involved in providing advice that is in the best interests of the client, s 961G is concerned with the content or substance of that advice.”
  • His Honour observed that at first blush the text of s 961B did not appear to support the proposition that s 961B is concerned with the process or procedure involved in providing advice that is in the best interests of the client. However, he then went on to say that support for this way of viewing the focus of s 961B is provided by the context in which it appears including the language of 961G, the legislative history and the legislative materials.
  • Although his Honour did not reach a concluded view on this issue (as it was not necessary to do so), it seems to us his comments lend support to the proposition that s 961B is focused primarily on the process by which an adviser goes about ensuring he or she gives advice, rather than the content of the advice itself (which is the focus of s 961G).
  • Although ASIC and NSG reached agreement concerning NSG’s liability, they did not reach agreement concerning the level of pecuniary penalties that were appropriate for the court to impose, which is likely to be determined by contested hearing at a later stage.

 

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The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to. Readers should take legal advice before applying it to specific issues or transactions.

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